#WashSaleRule #InvestopediaCliffNotes
If you are wanting to utilize Tax Loss Harvesting to make the most of an investment that went south ... you best be very familiar with the Wash Sale Rule if you want to count your losses against capital gains or income.
The Breakdown:
- Rule created by Internal Revenue Services (IRS) to keep people from artificially realizing losses for tax deduction purposes by selling securities at a loss then buying it right back
- "The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss and, within 30 days before or after this sale, buys a 'substantially identical' stock or security, or acquires a contract or option to do so." (Investopedia)
- This applies across all investing accounts including your individual retirement account or your spouses investing accounts
How do I avoid a Wash Sale?
- "So the wash-sale period is actually 61 days, consisting of the 30 days before to 30 days after the date of sale." (Investopedia)
- Be mindful that you did not recently purchase or accidentally repurchase the asset that you sold for a loss ... this includes shares received as dividends or in a different brokerage or retirement account
- If in doubt, ask a qualified professional such as a tax adviser
What should I know about the Wash Sale Rule before investing?
- Avoiding a Wash Sale is an important part of maximizing realized capital losses to offset capital gains or up to $3,000 of personal income via Tax Loss Harvesting
- Click on my Tax Tail Playlist to find the Tax Loss Harvesting video - link below
- Note that this is a point of contention w/in cryptocurrency as currently not subject to Wash Sale Rule but likely subject to change - see link for Forbes article below-
What are the downsides of Wash Sale Rules w/ investing?
- "Unfortunately, the IRS does not provide specific guidance on how to know whether a particular security is “substantially identical” to another." (Investopedia)
- This leaves it up to the individual investor or a tax adviser to help navigate this situation ...
- An example from my personal experience would be selling a S&P500 mutual fund ($FXAX) for a world ETF ($VT ) or selling Tesla and then buying an ETF with large exposure to Tesla such as $ARKK or $FDIS
Resource: Investopedia, Forbes
Video: https://www.youtube.com/watch?v=yYuLBl2VOoc
P.S.: You don't know what you don't know and so I am trying to build out a bunch of videos that explain terms that I think are relevant to a new investor whether it is the stock market #InvestopediaCliffNotes / #FinancialLingo or in the crypto market #CryptoLingo ... even built out #TaxTail / #SaturdaySchool for tax efficiency and retirement savings accounts. Go explore the different videos for ideas on what I think you should be learning.
Tax Tail Playlist: https://www.youtube.com/watch?v=H_XsLvg0uDI&list=PLn0fZqMvSiYDnwoBJFOx8_e32aMv8iYqn&index=4
Forbes Crypto Wash Sale Article: https://www.forbes.com/sites/shehanchandrasekera/2021/09/13/cryptocurrency-may-soon-be-subject-to-wash-sale-rules/?sh=3f35c7da59d3
#MakeTheWorldBetter
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I had no idea that this was a thing. Thanks for the heads up. I've traded like that a few times not knowing it was breaking a rule. Now I know and won't do it again
Awesome read bro. Awesome research bro. Keep reaching for the stars Doc. Hope you had a dope weekend bro
@russelljohnson the wash sale rule just means you won't get the tax savings part of realizing the loss. So you aren't in trouble you are just giving up the ability to realize that loss
@GetSlade It was an awesome time w/ my parents and sister!! Hope you have a wonderful long Thanksgiving weekend!
Indeed! I don't know what I don't know! Thank you for educating us new to this👍
Always putting out fire information. Taxes are going to be a larger part of my life as I make more money. Going to be referencing these later on for sure!
@hlatouche My pleasure! If you have questions feel free to ask them here and I will try to answer or point you in the right direction. I've read a bunch of different books and recently came across one that I now recommend to all new investors - “Starting Point: How To Create Wealth That Lasts” https://amzn.to/3acHX4m ... great overview and easy to understand
@brendanschema 😁If you post every day then eventually some will get traction. But ya Wash Sale is important especially because dividends can accidentally mess things up as you could get a share of a company from a dividend that had paid out after you sold
@ctsshah I will have to tread carefully. Thankfully for now I make about... nothing in the eyes of the IRS 😂(for capital gain purposes)
Do brokerages typically warn you before doing this trade? I feel like I’ve seen it before.
public member@CryptohGaga
So I cannot even sell a stock at a loss and rebuy back in without facing some kind of 💩 from the IRS. Awww great.
@saleh2127 😁
@lawyahdave I honestly don't know. For Fidelity they usually tell me after the fact that I messed up but it is difficult for any one brokerage to realistically warn you if you have multiple platforms. As this rules applies wholistically to your brokerage account and 401k and if applicable spouses account
@CryptohGaga lol Uncle Sam always wants his 🧀
public member@CryptohGaga
@ctsshah fck Sam and his cheese 😉😂
AW
Ann Watson@ann2shoe
Thanks for this info. You really help those of us that are learning.
You are an amazing fn human being shah
PT
Didn't know about that thank you brother
❤️ This is exactly why I follow you. It is literally every day you've taught me something new and I don't have the words to thank you enough. I came into investing feeling confused, lost and not knowing what I was doing. Your posts have helped me invest smarter and I don't feel as intimidated by purchasing stock as I did before. I'm still a little intimidated as I'm still learning. But you've made…See more
Public really outta throw you bone for your posts. You're literally the reason I'm still here.
@ann2shoe You are most welcome. I've accumulated a lot of random knowledge from investing over the years and just want to share it as quickly as people are willing to receive it. 😁
@SpiderMonkey27 hey!!! Long time now see. 😁Hope you are well and have a great Thanksgiving week. And appreciate the kind words
@seej 💙thanks for reading!
@GALACTICCH47 you are most welcome!! Hope to keep adding value to the feeds on Public
@TheMilkmanJ Honestly your comments mean the world to me and make me glad that I am doing it. I wanted to have positive social impact and so that is one way I measure my return on investment. I honestly do spend 30-40 hours doing all of this stuff outside of my regular 40 hours work week ... so receiving positive encouragement truly does help while I'm running all of this in the red. 😆But don't fee…See more
If you are an active trader you may be able to apply for market to market trader status. This was true 20 years ago. Not certain if it’s still true however I imagine it is as you must notify the irs that you are an active trader.
Robert Hagen@robbiebobbie
Thought it said financial Ligma
Here is what the irs says about mark to market trading for taxes Investors
Investors typically buy and sell securities and expect income from dividends, interest, or capital appreciation. They buy and sell these securities and hold them for personal investment; they're not conducting a trade or business. Most investors are individuals and hold these securities for a substantial period of time. Sal…See more
